America’s economy could be one of the big casualties in the new Iraq war. The outbreak of fighting in that country could drive gasoline prices to record highs, particularly if Baghdad falls, analysts are warning.

“This is going to have a rippling effect throughout the economy,” Dan McTeague of TomorrowsGasPriceToday.com told CBC News. “People may have to grin and bear it, or they may decide, with the increase, they may have to find other ways in order to save or not spend in other parts of the economy. That is obviously going to have a cascading effect over the next several months.”

Combat in Iraq affects US gas prices because Iraq is the world’s seventh largest oil producer. If oil from Iraq is impacted, it lowers the world’s supply and drives up prices. Oil supplies have been disrupted because a number of fields and refineries have fallen to the forces of the Islamic State in Iraq and Syria (ISIS) (the terrorist group formerly known as Al Qaeda in Iraq).

Analysts believe that oil prices could increase by $40 to $50 a barrel if Iraqi supplies were no longer available, the CBC reported. Oil was trading at $115.71 a barrel Thursday, the highest since Sept. 9. The American Automobile Association (AAA) said Monday that gas prices had risen for nine straight days.

ISIS is already attacking oil production by targeting refineries.

Already Affecting US Gas Prices

The ISIS crisis is already affecting oil prices because oil companies have cut production and pulled their people out of Iraq. One of ISIS’s tactics is to take foreign workers hostage.

Average gas prices, which had been falling prior to the recent increase, could soon return to the April high of $3.80 a gallon, AAA spokesman Michael Green predicted. The average gasoline price in the United States is around $3.66 a gallon.

The price in some states is much higher. Drivers in California already pay an average of $4.06 a gallon for gasoline. The average gas price in Los Angeles County is around $4.13 a gallon.

Baghdad’s Fall Could Lead to Record Gas Prices

Far higher prices could result if the fighting spreads into southern Iraq, where most of the country’s oil is located. The fall of Iraq’s capital, Baghdad, to ISIS’s army could be devastating to gas prices.

“If it does fall and if the terrorists move further south, the price you’re paying at the pump today is gonna look like a bargain in a couple weeks,” oil industry analyst Phil Flynn said in an interview with CBS Los Angeles.

The CBC reported that ISIS forces were about 25 miles from Baghdad on June 20.

Any ISIS offensive to the south could have a catastrophic effect upon gasoline prices because it would impact oil production, McTeague warned.

“If that is disrupted, then all bets are off,” McTeague said of oil production in Southern Iraq. “The fact is, prices will have to go up to meet the reality of disruption. OPEC’s No. 2 producer is Iraq and it’s no small player.”

One wildcard is Iran’s involvement in Iraq. Commandos from the Quds Force (Iran’s equivalent of Delta Force) are already fighting ISIS in Iraq. The Wall Street Journal reported that at least one Iranian has already been killed in Iraq and that Quds Force units have taken up positions near Baghdad.

What do you think about the Iraq war and gas prices? Tell us in the comments section below.